Rate cut from RBA firms as savings slump

The West finance reporter Meilin Chew runs through the day on the markets.

The West Australian

VideoThe West finance reporter Meilin Chew runs through the day on the markets.

The Reserve Bank could be forced into an emergency interest rate cut to help struggling consumers as new figures reveal Australians are digging deeper into their savings to make ends meet as the economy slows.

As a Twitter-storm by US President Donald Trump precipitated a multibillion-dollar fall on the Australian sharemarket yesterday, it emerged that the nation’s GDP grew by a lower-than-expected 0.3 per cent in the three months to the end of September.

It was the slowest quarterly growth in three years, according to the Australian Bureau of Statistics, with annual growth slipping from 3.4 per cent to 2.8 per cent.

Of most concern were falls in household savings and discretionary spending by consumers, while inflation-adjusted household disposable income fell 0.1 per cent. In the past year, there has been no real growth in incomes for most Australians.

Business investment, led by the mining sector, fell though it was offset by another strong lift in government spending.

Markets reacted to the data by driving down the Australian dollar, which fell below US73¢, while expectations of a rate cut by mid-next year increased.

AMP Capital chief economist Shane Oliver said the pressure on consumers would force the Reserve Bank into cutting official interest rates next year.

“Given the combination of falling house prices, tightening credit conditions and constrained growth, which will keep wages growth weak and inflation below target, we are changing our view on the RBA keeping rates on hold until the second half of 2020 to the next move being a rate cut,” he said.

There was positive news for WA, with State final demand rising 0.4 per cent in the September quarter. It was held up by private and public capital spending as households across the State reducing their spending.

Equity markets struggled under the weight of Mr Trump’s Twitter feed. Markets had been positive about a meeting between Mr Trump and China’s leader Xi Jinping at the weekend that appeared to have resolved their trade dispute. But Mr Trump’s tweets suggested there was still a risk of a full trade war.

“President Xi and I want this deal to happen and it probably will. But if not remember, I am a Tariff Man,” he wrote. “When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power.”